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Thursday, May 03, 2012

Upcoming Hearing & EIA Report On Clean Energy Standard Act

May 2: The Senate Energy & Natural Resources (ENR) Committee, Chaired by Senator Jeff Bingaman (D-NM) with Ranking Member Lisa Murkowski (R-AK) has announced a hearing scheduled for May 17, to receive testimony on S. 2146, the Clean Energy Standard Act of 2012 [See WIMS 3/1/12]. Senator Bingaman introduced the legislation on March 1, 2012, which he indicated would modernize the nation's power sector and guide it toward a future in which more and more electricity is generated with cleaner and cleaner energy. At the time of introduction, Senator Bingaman said the Clean Energy Standard (CES), "employs a straightforward, market-based approach that encourages a wide variety of electricity-generating technologies. It sets a national goal for clean energy and establishes a transparent framework that lets resources compete based on how clean they are, then gets out of the way and lets the market and American ingenuity determine the best paths forward."

Under Senator Bingaman's bill, all generators of "clean" energy are given credits based upon their carbon emissions; greater numbers of credits are given to generators with lower emissions per unit of electricity. Senator Bingaman indicated that this flexible framework: allows a wide variety of sources (solar, wind, nuclear, natural gas, coal with carbon capture and storage, etc.) to be used to meet the standard; allows market forces to determine what the optimal mix of technologies and fuels should be; and makes it easy for new technologies to be incorporated. To be considered "clean," a generator must either be a zero-carbon source of energy, like renewables and nuclear power, or have a lower carbon intensity than "a modern, efficient coal plant." Carbon intensity is defined as the amount of carbon dioxide emitted per megawatt-hour of electricity generated. Accounting for "clean" this way means that the cleanest resources have the greatest incentive, and also that every generator has a continuing incentive to become even more efficient.

On the same day as the CES hearing was announced, the U.S. Department of Energy (DOE), Energy Information Administration (EIA) released its analysis of S.2146. Senator Bingaman indicated that the EIA's analysis shows that the bill would drive greater usage of the clean energy resources that already are in service, while also providing a long-term market signal to drive innovation and greater deployment of new clean energy for the future. It also shows that the CES would have little impact on national electricity rates for the first decade of the program. Senator Bingaman also indicated that the EIA analysis projects that the technology-neutral, inclusive design of the legislation will lead to substantial amounts of new clean energy from a wide range of sources, including wind, solar, natural gas and nuclear power. EIA also projects enhanced industrial efficiency would result from enactment of the legislation, with 21 percent more combined heat and power (CHP) deployed in 2035. EIA estimates that the legislation would reduce greenhouse gas emissions from the power sector by 20 percent in 2025 and by 44 percent in 2035.

Specifically, the EIA analysis indicates, among other things, that "The BCES12 [the S.2146 model name] alters the projected generation mix, significantly reducing the role of coal-fired generation, while increasing the role of nuclear, natural gas, and non-hydropower renewable technologies. Coalfired generation decreases significantly under the BCES12, falling to 25 percent below the Reference case level in 2025 and 54 percent below the Reference case level in 2035. Conversely, natural gas-fired generation increases under the BCES12, with the greatest impact relatively early in the projection period, prior to significant new renewable or nuclear capacity coming online. In 2020, natural gas-fired generation is 13 percent above the Reference case. By 2025, this differential has fallen to 10 percent, and by 2035, natural gas-fired generation under the BCES12 is only 8 percent higher than in the Reference case. In absolute terms, most additional natural gas-fired generation occurs in the electric power sector; however, total combined heat and power (CHP) generation fired by natural gas does increase substantially due to the BCES12 provision that allows some CHP generators, to a limited extent, to sell BCES12 credits. . . BCES12 CHP generation fired by natural gas exceeds the Reference case by 8 percent in 2025, and by 21 percent in 2035."

EIA also indicates that, "Nuclear generation increases substantially under the BCES12 policy. More than 80 gigawatts of capacity is added by 2035, compared to less than 10 gigawatts in the Reference case, resulting in 2025 nuclear generation exceeding the Reference case by 16 percent and 2035 nuclear generation exceeding the Reference case by 62 percent. Although pre-1991 nuclear capacity does not receive credits, its generation is removed from the baseline of required clean energy sales, so there is an incentive not to retire existing units beyond those already retired in the Reference case. Furthermore, due to the significant number of coal-fired plant retirements97 gigawatts by 2035 versus 33 gigawatts in the Reference casethere is greater need for additional baseload capacity. The relatively high credit price combined with the need for additional baseload capacity and CES-compliant generation all contribute to the significant nuclear capacity additions in the latter part of the forecast. . ."

EIA notes that, ". . .increased nuclear generation is a key compliance option in the BCES12 case. However, there is uncertainty about the ability of the nuclear industry to ramp up quickly even with the incentives that will be provided by the CES. While new nuclear capacity is once again under construction in the United States, it will be some time before a broad expansion could be expected. With these uncertainties in mind, EIA also looked at a case that assumed that no new nuclear capacity is built, aside from planned additions in the Reference case. Compared to the BCES12 case, natural gas generation in 2035 is about 7-percent higher and renewable generation is about 40 percent higher in an effort to meet the requirement with other qualifying sources. Most of the growth in renewable generation is projected to come from wind and solar generators. The price for clean energy credits and electricity prices are projected to be higher in this case, while the reduction in energy-related carbon dioxide emissions is smaller. With nuclear power builds limited to plants already in the pipeline, ACP [alternative compliance payment]payments are widely used, in contrast to the BCES12 case."